Ohio Environmental Law Blog : Ohio Environmental Lawyer & Attorney : Joseph Koncelik : Frantz Ward Law Firm : Environmental Regulation, Land Use, Compliance : Cleveland, Ohio

Ohio State Senator Kris Jordan (R-Powell)  introduced Senate Bill 216 which would repeal Ohio's renewable portfolio standard ("RPS").  The RPS requires  that the state's electric utilities provide 25% of their retail energy supply from advanced and renewable energy sources such as clean coal, wind, and solar energy by 2025.  

Ohio enacted the RPS in 2009.  Each year the percentage of electricity to come from renewable or advanced energy sources gradually  increases until you reach the maximum of 25%. 

The bill is co-sponsored by Senators Tom Patton (R-Strongsville) and Bill Seitz (R-Cincinnati). The Senators argue that the RPS requirement is driving up electricity prices during a tough economy which is bad for economic development. 

The proposal comes as Governor Kasich is hosting a two-day energy summit to discuss Ohio's energy policy.

Short Term Job Gains

When Ohio enacted the RPS, the proponents argued that it would lead to job growth.  First, jobs would be added as projects were developed to meet the RPS requirements.  Second, manufacturers of renewable energy parts and equipment are more likely to locate in a state that shows support for its industry through passage of an RPS.

A recent study discussed in a prior post suggests those arguments have validity. 

• Ohio ranks 6th in the country in total clean energy related jobs with a total of 105,306.
• Ohio also ranked 12th in total clean energy jobs added between 2003-2010.

Long Term an Over-Reliance on Coal Hurts Ohio

Ohio still gets approximately 90% of its power generation from coal-fired power plants.  There is no argument that coal power has been subject to a flood of new and proposed regulations.  Those regulations include the following:

• Mercury limits
• Greenhouse gas regulations
• NOx SIP Call- cap and trade for power plants
• Cross-State Air Pollution Rule- greater reductions from power plant emissions enacted this year

This is just a partial list of the regulations facing coal power.  With all these regulations forcing more controls the cost of coal power is going to continue to rise.  It is not too difficult to see Ohio would be very wise to diversify its power portfolio or face future price shocks from these new regulations.

Not to overly simplify, but any good stock broker tells its customers to diversify their portfolio to reduce risk.  In particular, a broker will advise their client to reduce their investment in companies/stocks that are facing "head winds" or challenges in the future.

This is exactly the position the state is in when it relies almost exclusively on coal power.  The RPS serves as a tool to diversify its energy portfolio prior to experiencing these future price shocks.

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Governor John Kasich has not revealed his true feeling regarding the Renewable Energy Portfolio (called the Advanced Energy Portfolio Standard in Ohio) which mandates a certain percentage of electricity should be generated from renewable sources like solar, wind, biomass and others.  Ohio's RPS was instituted as part of Governor Strickland's major energy legislation- S.B. 221.

While the Governor has not affirmatively announced a position, there appears growing sentiment he may be cool to the idea of energy generation mandates.  He recently announced an energy summit with Battelle in Columbus. The Summit will be held on September 21st ad 22nd and will be called "Ohio Governor's 21st Century Energy & Economic Development Summit." Leaders from energy, business, education, government and economic development have all been asked to participate.

However, his comments in announcing the summit suggest he believes major reform is needed and perhaps SB 221 needs review.

"Right now, Ohio essentially has no energy policy, but at the same time energy costs are major factors in the success of every sector of our economy, especially manufacturing and agriculture," said Kasich, as reported in The (Cleveland) Plain Dealer.

Reasons to Support RPS

Those in favor of the RPS say its a job creator by supporting green energy and suppliers to green energy development companies.  They also point to Ohio's heavy reliance on coal power- nearly 90% of generation.  While cost of baseload coal may be cheaper than renewable sources, the difference is shrinking due to advances in green technology and more and more regulation on coal.

The regulatory trend line for coal does nothing but continue to point upward.  With each new regulation the cost of coal power continues to climb.  Here is examples of regulations recently issued by EPA affecting coal:

• Rule on toxic emissions from power plants
• Toxic standards from industrial boilers
• Clean Air Transport Rule for coal fired power plants
• Revisions to the NAAQS, including a potential tightening of the ozone standard in August
• Potential regulation of coal ash (EPA seeking comments)
• Soon to be proposed cooling water intake structures rule
• New Source Review Enforcement Cases (Includes recent TVA settlement)
• EPA existing ad future greenhouse gas regulations

A shift away from Ohio's heavy reliance on coal will takes years to accomplish.  Supporters of S.B. 221 argue the RPS puts Ohio on a steady path to diversify its portfolio.

Opponents of RPS

Those who oppose RPS mandates argue it drives up energy prices by forcing utilities to purchase more expensive renewable energy.  As energy prices escalate, they argue, companies face higher operating costs.

The Debate Has Already Commenced

Supporters of S.B. 221 and the RPS are already starting to make their voices heard.  Perhaps they are anticipating a potential assault on Ohio's fledgling RPS.  

"Since inception of the energy law, over 1,700 renewable energy projects have been approved, including over 1,000 MW of wind power - enough energy to power over 300,000 homes." Guest Column Larry Feist is Program Chair in Electro-Mechanical Engineering Technology and Power Systems Engineering Technology at Cincinnati State Technical and Community College.  (Click here to read Cincinnati Enquirer Article)

Other states have already made the decision to increase their green energy mandates. Governor Jerry Brown signed into law Special Senate Bill 2, raising California's Renewable Portfolio Standard (RPS) from 20% to 33% by 2020.

Governor Kasich's budget slashed funding for renewable energy projects by 38% causing some in the industry to question his support going forward.  This from a Business First article:

The president of SolarVision LLC in Westerville said alternative power sources, such as wind and solar, take a backseat to drilling for oil and natural gas when he hears the governor talk about energy in the state. Kasich often mentions the promising potential for oil and natural gas wells in eastern Ohio where new drilling methods have opened up the huge Marcellus and Utica shale formations for development.

The debate in Ohio appears to be just heating up.  One thing is certain, businesses don't like uncertainty.  As long as the possibility that S.B. 221 and the Ohio RPS may be repealed or revamped, it creates uncertainty which creates head winds for projects moving forward. 

As the debate over the budget ends in July, there is no doubt that energy policy will once again take center stage especially with rising commodity prices.

(Photo: Great Valley Center Image Bank- Everystockphoto.com)

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This week U.S. EPA finalized its long awaited rule making establishing air emission standards for industrial and commercial boilers.  The standards are to reduce emissions of hazardous air pollutants (HAPs) by requiring sources to install or meet of Maximum Achievable Control Technology (MACT).

Controversial Rulemaking Process Comes to an End

EPA proposed MACT standards in spring of 2010 which were intended to replace previous rules that had been vacated by the D.C. Court of Appeals.  The spring proposal was met with harsh criticism from business interests who argued the standards were based on incomplete or inaccurate facts.  The business community argued that the poorly supported standards would result in huge costs.  In response, businesses poured in thousands and thousands of comments and supplied data supporting their arguments.

Reaction to the New Standards

Generally, most recognize the final rules are a huge improvement over the Spring 2010 proposal.  By some estimates, the final rules will cost about $1.8 billion less per year than the rules that were proposed last spring. 

However, there is still concern that the standards don't provide needed flexibility.

“Despite the best efforts by the administration and [EPA], what we are left with is a rule that in spirit is a very positive development,” said Bob Cleaves, president and CEO of the Biomass Power Association. “I think a number of important changes were made. But I think it remains problematic.” (click here for more information on the Biomass Industry's reaction to boiler MACT rules)

Some environmental groups are complimenting  EPA's efforts to balance business concerns with protecting the environment.  Perhaps there is growing recognition that EPA's regulations are under assault and there is a need for more balanced proposals. (see, NY Times Article on Boiler MACT Rules) 

"It appears that EPA has addressed many of the industry complaints while still putting out standards that would bring significant public health benefits," said Frank O'Donnell, president of the advocacy group Clean Air Watch. "Let's hope that EPA stands its ground when industries argue for further changes. "

Some appear ready to conclude that this proposal shows the President Obama is listening to concerns regarding the price of EPA regulations and will scale back earlier proposals.  This seems to be perhaps overreaching.  It is more likely that the business community did an excellent job providing EPA good data to demonstrate their earlier proposal was flawed.  No doubt the pressure from the business community helped EPA to take a close look at that data.

Below is some general information regarding the requirements in the new rule.

Boilers Are Covered?

• Boilers that emit or have the potential to emit more than 10 tons per year (tpy) of a single HAP or more than 25 tpy of a combination of HAPs
• Boilers that burn coal, oil, or biomass, or non-waste materials.  It excludes boilers that burn solid waste.
• Different requirements apply to boilers classified as large boilers (10 million BTU per hour or greater) versus small boilers (less than 10 million BTU)
• HAPs include mercury, lead, dioxin, furans, formaldehyde and hydrochloric acid

What Requirements Apply?

The rule establishes standards for emissions of mercury, particulate matter (PM)
(as a surrogate for non-mercury metals), and carbon monoxide (CO) (as a surrogate for
organic air toxics)

New Boilers

• Coal-fired boilers, with heat input equal or greater than 10 million Btu per hour, are required to meet emission limits for mercury, PM, and CO.
• Biomass and oil-fired boilers, with heat input equal or greater than 10 million Btu per
  hour, must meet emission limits for PM
•  Boilers with heat input less than 10 million Btu per hour must perform a boiler tuneup
  every two years.

Existing Boilers

• Coal-fired boilers, with heat input equal or greater than 10 million Btu per hour, are required to meet emission limits for mercury and CO.
• Biomass boilers, oil-fired boilers, and small coal-fired boilers are not required to meet
  emission limits. They are required to meet a work practice standard or a management
  practice by performing a boiler tune-up every 2 years.
• All area source facilities with large boilers are required to conduct an energy
  assessment to identify cost-effective energy conservation measures.

Reaction to Revised Rules

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On June 4, 2010, U.S. EPA released its much anticipated proposed standards for industrial boilers to reduce hazardous air pollutants ("HAPs").   Since their release, EPA has faced an outcry that the proposed standards are "fundamentally flawed" or "unachievable."

So what is the controversy?

EPA's boiler standards are supposed to reflect the application of the maximum achievable control technology (“MACT”). 

What is MACT?

MACT requires the maximum reduction of hazardous emissions, taking cost and feasibility into account.  The MACT must not be less than the average emission level achieved by controls on the best performing 12 percent of existing sources, by category of industrial and utility sources.

I highlighted a couple key terms in U.S. EPA's definition. 

Cost and Feasibility-  Unlike other EPA standards, cost and feasibility in achieving the standards are relevant.  Many argue cost of compliance with proposed standards will be dramatically too high.

Best Performing 12%-  As discussed below, many assert EPA's methodology for developing the top 12% performing sources is fundamentally flawed.  They assert EPA simply "cherry picked" certain sources and unfairly based its limits on too small of a data pool.

Controversy Builds

On August 2nd, 100 members of Congress submitted a letter to Administrator Jackson asking EPA reconsider its proposed boiler MACT standards:

EPA should use a method to set emission standards that is based on what real world best performing units can achieve.  EPA should not ignore biases in its emissions database, the practical capabilities of controls or the variability in operations, fuels and testing performance across many regulated sectors.

Impact on Biomass Industry

One group strongly opposing EPA is proposal is the biomass industry which believes the proposal unfairly lumps biomass in with all other fuels.  The biomass industry has indicated the standards, if finalized, could prevent the development of additional biomass sources.  The National Alliance of Forest Owners (NAFO) provides the following description of EPA's flawed MACT methodology:

EPA explains that “[f]or each pollutant, we calculated the MACT floor for a subcategory of sources by ranking all the available emissions data from units within the subcategory from lowest emissions to highest emissions, and then taking the numerical average of the test results from the best performing (lowest emitting) 12 percent of sources.” 75 Fed. Reg. at 32019.This “pollutant-by-pollutant ” approach to determining MACT is not appropriate because it results in standards that do not reflect the performance of the best performing boilers for any fuel source. 

The CAA requires that EPA set standards based on the performance of actual
“sources.” Yet EPA’s analysis does not reflect the performance of any actual sources. Instead, it is a compilation of the best data, for each pollutant, regardless of which source the data came from. As a result, the proposed rule’s limits are unnecessarily stringent. They do not reflect the variability that occurs in real-world.

There is no denying EPA failed to look at fuel types when establishing standards.  Rather, EPA went pollutant by pollutant and looked for the smallest emissions without considering the fuel being used in the boiler.

Genreal Industry Concerns

The biomass industry is just one of many industry sectors strongly opposing the rules.  The American Chemistry Council described the rules as "fundamentally flawed" in their comments:

“EPA’s faulty methodology begins with pollutant-by-pollutant analyses that select a different set of ‘best performing sources’ for each pollutant. In other words, EPA ‘cherry picks’ the best data in setting each standard, without regard for sources. The result is a set of standards achieved by a hypothetical set of ‘best performing’ sources able to maximize emission reductions for each hazardous air pollutant (HAP), rather than standards representative of actual performance of real sources. EPA’s approach produces unachievable standards."

How is EPA cherry picking its data?  Industry says EPA uses a limited data set of emissions from sources in establishing the standards. EPA has failed to test enough sources to truly reflect each category of sources.  Without a full or adequate data set, EPA is skewing the top 12% of best performing sources. It really becomes the top 12% of sources EPA tested, which can be a small percentage of boilers in use.

Furthermore, Industry argues EPA failed to account for variations critical when establishing a MACT standard.  Boilers can vary in design, pollution controls and fuels utilized. Industry argues these variations should have been considered in evaluating the top 12% performing sources.

[For more insight into industry's general concerns here is a link to Ohio Chamber Comments]

Regulators Echo Industry Concerns

Industry is not alone in strongly criticizing EPA proposal.  Ohio EPA filed its own comments on the U.S. EPA proposed boiler MACT standards supporting the notion EPA's methodology is flawed:

Limited Data Concerns:

[EPA's] analysis seems to only utilize emission performance data from a limited number of sources and in some cases as few as one or two sources.  At a minimum a NESHAP standard needs to be based on the performance of five sources or all sources if fewer than five in a category.

Emission Standard Methodology

The emission limits proposed in the rule seem to be based on the lowest demonstrated emission rates within a source category (based on a limited number of sources) and does not directly evaluate control efficiency of equipment.  Using the emission rate approach may not identify the sources demonstrating the highest control efficiencies, but rather may simply reflect low fuel content of the pollutants.  In this case, resulting emission limits can be more stringent than achievable for sources utilizing certain fuels.

Impact on Fuel Types

EPA's approach may be eliminating certain fuels from use in industrial boilers.  For example, midwest coal with higher sulfur or mercury content.  Or in the case of biomass, wood feed stocks that have already have lower hydrogen chloride (HCL) content, may not be able to remove additional quantities to achieve the low standards EPA is proposing.

Conclusion

EPA's rule impacts such a huge portion of industry and commercial operations.  It should be carefully crafting a set of standards that are achieveable as well as flexible. Two final points:

•  Not all pollution controls are appropriate for every sized boiler;
• Restricting fuel types by establishing standards that discount pollutant content of those fuels does not reflect "real world" practices that NESHAP standards are intended to reflect.

(Photo:  U.S. EPA website)

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There is a very good article in the Akron Beacon Journal discussing the debate over the use of biomass as a replacement for coal.  Here is an excerpt from the beginning of the article (click here for full biomass article):

Burning Ohio trees at Burger sets fire to debate
Opponents are hot that FirstEnergy will get credits, question if state can produce enough fuel for power plant

By Bob Downing
Beacon Journal staff writer

Switching from dirty coal to clean wood at FirstEnergy Corp.'s R.E. Burger Power Plant will require millions of trees — year after year.  Where those trees will come from and new questions about whether the switch helps the environment have triggered objections from Ohio environmental and consumer-advocacy groups.

The dispute has brought Akron-based FirstEnergy's application for renewable energy credits — a financial incentive to make the conversion — to a standstill at the Public Utilities Commission of Ohio.

While the article does a great job discussing the different view points, it does not cover one important aspect- Ohio desperately needs to diversify if energy generation.  Right now it relies almost 90% on coal. 

Coal is facing more and more stringent regulation.  These include:

• Tighter caps on Nox and SO2 emissions in U.S. EPA's proposed Transport Rule
• Multi-pollutant legislative proposals in Congress
• MACT standards for mercury reduction
• Legislation and/or regulation of greenhouse gas emissions
• Tighter waste disposal requirements

All of this new and potential regulation means the cost of energy production in Ohio will be escalating.  In addition, the prospects for significant added regulatory cost are great.  The challenge for Ohio is great given that it is a highly energy intensive State due to its population and manufacturing base. 

Similar to diversification in your stock portfolio, Ohio needs energy diversification.  The reality is there are not many sources of energy that can provide baseload power.  While wind farms and solar are clean and good investments, they do not produce significant power.  

Nuclear, biomass and natural gas are the current alternatives to coal for baseload power generation.  New nuclear capacity will take years to construct.  Natural gas has its own wild price fluctuations.  Which leaves biomass. 

Outside of greenhouse gas emissions, biomass is a cleaner fuel.  In addition, while  the need for large supplies of biomass fuel may leave wood as the only immediate option, that will change.  Once demand is created, the market will develop other alternatives. 

Energy policy means hard choices.  For those groups strongly opposing biomass, they must answer- if not coal, biomass or nuclear, then what is left as an option given the realities of current technology?

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Ohio is using federal stimulus money to establish a new grant opportunity in the renewable energy area.   The Ohio Department of Development has released an RFP soliciting proposals with a total of $10 million in available funding. 

Minimum award is $500,000 and maximum is $1 million.

The grant program is looking for projects that convert feedstocks such as municipal solid wastes, food and farm wastes, or other bio-mass or waste materials to electricity, heat, fuel and/or bio-products.

There is a cost share requirement of 25% of total cost of the project. Cost share can take the form of financial or in-kind contributions.

Grant funds can only be used to purchase and install eligible project equipment for conversion of wastes and biomass into energy , heat, fuel or products.  Due to limitations placed on federal stimulus funding, you may not use grant funds for any of the of the following:

• Construction costs;
• Purchase of buildings or land; and
• Purchase of equipment for renewable energy techniques that are deemed not commercially available.

More information on the Transforming Waste to Value grant program offered by ODOD.

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Ohio's best hope for reducing its overwhelming dependence on coal for electricity generation is  biomass.  While wind and solar have significant benefits, it is unquestioned that current technology does not allow these renewable sources to be forms of base-load power generation. 

Biomass does have that potential in Ohio, as is evidenced by the recent announcements of the conversion of 312-megawatt First Energy's Burger coal-fired power plant to biomass generation.  Now that proposal is meeting opposition by environmental groups. As reported in Biomass Magazine:

The Ohio Environmental Council and Consumers’ Counsel have asked the Public Utilities Commission of Ohio to reject FirstEnergy’s request for classification of its project as a renewable energy facility on the grounds that it has not provided enough information to warrant the qualification...The two agencies are now requesting dismissal of the application altogether.  “The whole state could be deforested to produce energy for this one project.” (attorney OEC)

Opposition to the First Energy proposal will undoubtedly make movement toward biomass as a replacement for Ohio's coal dependence much more difficult. 

Studies have confirmed that biomass presents the best hope for Ohio re-aligning its generation portfolio. A 2004 study by The Ohio State University analyzed the potential of biomass as an source of electricity generation in Ohio:

Recent studies illustrate that Ohio as a relatively large biomass resource potential.  Among the 50 states, Ohio ranks 11th in terms of herbaceous and wood biomass and 4th in terms of food waste biomass.  As a result, using renewable biomass fuels in Ohio could lead to an estimated 27.6 billion in kWh of electricity, which is enough to fully support the annual needs of 2,758,000 average homes, or 64% of the residential electricity use in Ohio.

Now a new study calls into question a long held belief regarding the benefits of biomass power. It has always been assumed that biomass is better than fossil fuels in reducing greenhouse gas emissions. The assumption is based upon the "carbon cycle:"

Through photosynthesis, biomass removes carbon from the atmosphere, thus reducing the amount of atmospheric carbon dioxide, a major contributors to global warming.  When biomass is burned to produce energy, the stored carbon is released, but the next grown cycle absorbs carbon from the atmosphere once again.  (Public Utilities Commission of Ohio Webpage on Biomass Energy)

A new study now questions the "carbon cycle" benefits of biomass power.  It comes from a State that has historically been a very strong supporter of biomass energy- Massachusetts.   The Biomass Sustainability and Carbon Policy Study, released in June 2010, addresses the following issues:

• Sustainable forest management and ecological implications of biomass harvesting
• Carbon sequestration of forests with and without forest management
• Net effect of biomass energy on atmospheric carbon balance
• U.S. and international policies in regard to biomass and carbon neutrality

The study concludes that use of forest biomass actually has greater emissions of CO2 (a greenhouse gas) than commonly utilized fossil fuels.  The chart below from the study shows forest biomass (wood) generates 31% more CO2 than coal.

Does the conclusions of this study mean Ohio should no longer consider biomass as having the best renewable energy potential?

I don't think that is the case.  As discussed numerous times on this blog, the cost of coal is going to increase as a result of ever tightening environmental requirements (ozone & fine particle standards, MACT (mercury), revamped CAIR).  This doesn't even include eventual climate change regulations that target reductions from existing sources. Therefore, there is a very strong incentive for Ohio to continue to quickly re-balance its power generation portfolio. 

 Certainly the other benefits of biomass remain unquestioned.  These include:

• Renewable resource- sustainability of the resource
• Non-CO2 pollutant reductions
• Only alternative energy source with immediate base-load power potential

While development of biomass continues to make sense, it is important to continue to question assumptions regarding any alternative resource.  The recent Massachusetts study is worthy of consideration when making strategic decisions regarding re-balancing Ohio's generation portfolio.

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On April 15, 2009 the Public Utilities Commission of Ohio finally adopted the long awaited rules that will govern Ohio's energy efficiency requirements and its Alternative Energy Portfolio Standard (AEPS).  Ohio was one of the last states to have adopted a Renewable Portfolio Standard (RPS)- more broadly defined as a AEPS in Ohio.  However, as one of the largest energy intensive states in the Country the finalization of the rules will surely spur growth of "green energy" related business in Ohio.

As a former regulator, a frequent mantra in describing the decision making process was- "if both sides are unhappy then you know you did your job well."   Well the Commission appears to have followed that mantra in responding to the vast amount of comments that were filed on the rules.  It sided with the Utilities on many issues and it sided with consumer and green groups on many issues.  It rejected many suggestions and complaints by Utilities and it rejected many suggestions and complaints by consumer and green groups.

The rules cover three major aspects of S.B. 221 passed by the Ohio Legislature in the summer of 2008:

1. Energy Efficiency and Demand Reduction Programs
2. Alternative and Renewable Energy Portfolio Standards
3. Greenhouse Gas Reporting and Carbon Dioxide Control Planning

Here is a brief recap of the changes made in response to comments.

Energy Efficiency and Demand Reduction Programs- The Commission completely restructured the rules governing energy efficiency and peak demand reductions.  The Commission revisions where designed to "reflect a focus on the program planning and review process."

• Cost Effectiveness- added new definitions of "cost effective" and "total resource cost test" that are applied to energy efficiency programs.
• Procedures for Review of Compliance Plans-  New hearing requirements were added on the planned portfolio of programs offered by an electric utility to meet energy efficiency benchmarks.  The hearing requirement was added in response to criticism that the benchmark review process be opened up and follow traditional Commission rate case procedures.
• Independent Auditors- Commission requires use of independent program evaluators (hired by the Utility but work at the direction of Commission Staff) to review and verify claimed energy savings and peak-demand reductions
• Calculating the Baseline for  Measuring Efficiency Improvements- the baseline will be measured by a "rolling average" of the last three years of kilowatt hours purchased instead of a fixed average of 2006 through 2008.  The Commission basically rejected claims by Utilities that using a rolling average keeps raising the bar because it incorporates the energy efficiency improvements each year.  As a result, the Utilities argued the energy saving requirement is closer to 39% than the 22.2% required in S.B. 221
• Banking "Overcompliance"- Commission will allow Utilities to "bank" over compliance with the energy efficiency benchmark and apply the overcompliance to future years
• Adjusting for Economic Growth- Baseline can be adjusted to account for either growth or reductions in economic growth.  The idea is to remove the influence of a changing economy on achieving energy efficiency improvements
• Mandated Efficiency Improvements- Utilities cannot count energy savings that result from customer installed appliances or equipment that are mandated by law including the Energy Independence and Security Act of 2007

Alternative Energy Portfolio Standard- S.B. 221 splits the 25% of electricity energy by 2025 standard into two separate benchmarks- one for "alternative energy" sources and another for "renewable energy sources."  The rules put a lot more teeth into the renewable energy benchmark, including specific interim benchmarks. 

Overall, the Commission did not address significant concern with some of the loose aspects of the Alternative Energy benchmarks.  These include the definition of what constitutes "Clean Coal" as well as what can be counted toward meeting the Alternative Energy Benchmark.  However, as detailed below, the Commission did put teeth into the "cost cap" provisions associated with compliance with either benchmark.

• RFP- Rejected a suggestion that renewable and alternative energy be procured through a Commission sponsored RFP process to ensure transparency
• Biomass- with regard to wood resources, the Commission allows use of wood and paper manufacturing waste, urban wood and tree residues, forestry residues, forest management or other land clearing.  However, forest resources must be from "sustainable forest management operations."
• Clean Coal- the Commission rejected criticism that the current rule would provide credit to technology that is "designed" to reduce CO2 irregardless of whether the reductions are actually achieved.
• Co-firing- will qualify as a renewable energy resource as determined by the proportion of energy input from the renewable energy resource.
• "Delivered into this State"- Commission will still require a power flow study and/or deliverability study to show power in the PJM or MISO transmission systems are deliverable into the state.
• Distributed Generation- renewable energy credits (RECs) generated from distributed energy sources belong to the owner of the equipment
• "Double Counting"- cannot use one project to meet both the energy efficiency benchmarks and the AEPS
• "Unbundling"-  Cannot unbundle other positive environmental attributes associated with creation of a REC and sell those attributes separately.  The classic example is you cannot sell the climate change CO2 reductions as well as RECs from one project.  You will have to choose with credits are more valuable
• Energy Storage- by itself cannot be considered a renewable energy resource
• Cost Cap- rejected utilities argument that the advanced energy and renewable energy cost caps be aggregated as one 3% cap. Also, rejected claim that the 3% increase is measured by isolating cost of generating the renewable or alternative energy.  Rather, the cost cap is triggered only if overall cost of supplying all forms of electricity rises more than 3% in order to meet the alternative energy or renewable energy benchmarks.  This ruling makes it far more difficult for Utilities to trigger the cost cap provisions.
• "Catch-up Provision- Commission effectively drops the requirement that future year benchmark compliance requirements be increased by the amount of undercompliance of the previous year due to the 3% cost cap

Greenhouse Gas Reporting Requirements

The Commission rejected concerns raised by Utilities regarding the mandate in the rules to become participating members in the Climate Registry.  The Commission noted that  S.B. 221 requires reporting and tracking of CO2 emissions must be performed.

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On February 18th another permit, Northern Michigan University Ripley Heating Plant, for a new coal facility was remanded by U.S. EPA's Environmental Board of Review.  The Board remanded the permit because the State (the Michigan Department of Environmental Quality), in issuing the permit, failed to address whether CO2 was a regulated pollutant under the Clean Air Act.  The most interesting aspect of the decision is that the Board apparently gave absolutely no weight to former EPA Administrator Johnson's Memo which said CO2 was not a "regulated pollutant" and therefore new permits need not consider BACT controls for CO2.  Here is what the Board said on the issue:

For the reasons set forth in that decision (Deseret Power), we similarly remand the CO issue here, directing MDEQ, guided by our findings in Deseret, to undertake the same consideration whether the CAA’s “pollutant subject to regulation” language requires application of a BACT limit to CO emissions.

The Board does not elaborate or even address the Johnson memo.  Therefore, it is impossible to know whether new EPA Administrator Jackson's grant of the Sierra Club's petition for reconsideration rendered the Johnson Memo meaningless.  That seems like a difficult legal conclusion to reach given the fact Jackson's action specifically did not block the effectiveness of the Johnson memo while it was undergoing review.

The permit had authorized Northern Michigan University (NMU) to construct a new circulating fluidized bed (“CFB”) boiler at the Ripley Heating Plant on its campus in Marquette, Michigan. As permitted, the CFB boiler will function as a cogeneration unit that provides both electrical power and heat to NMU’s facilities through the burning of wood, coal, and natural gas

Another interesting aspect of the decision was the Board also remanded the BACT analysis for the SO2 limit.  The permit called for a mix of fuels- mainly wood and coal.  The Board found there was not enough information provided to justify the limited amount of wood which would lower SO2 emissions.  The Board also questioned the fuel choice relative to coal.  It said the MDEQ needed to provide more information as to why lower sulfur coal was not required to lower SO2 emissions.

The BACT requirements for fuel choice are interesting.  For instance, once (not if) CO2 is regulated would BACT require a coal and biomass mix which can lower emissions of CO2?  This could be very good news for biomass producers who blend biomass with coal to form briquettes or pellets. 

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I have been following discussion regarding the green elements of the Presidents Stimulus Package, known as the American Recovery and Reinvestment Act of 2009.  There is certainly a lot directed toward environmentally related projects, especially renewable energy development.  Leading some to call these provisions the "Green New Deal." 

What is the real story behind some of the spending that has been reported?  You certainly can find information all across the web and on government sites that simply lists the amount of money in the bill and which program it has been directed.  However, detail about what the money will really be used for can be hard to find.

Bottom line, some provisions are better than others.  For instance, much of the money directed toward U.S. EPA will pay for existing projects.  This includes prior grant applications, clean ups already under contract or projects previously selected for funding.  So, for many of you expecting great new opportunities for EPA related projects, I don't think the bill offers you that much. (with the exception of diesel engine related grants- see below).

The renewable energy side of the equation is a totally different story.  There are continued and new tax incentives as well as new grant opportunities.  There is a lot in the bill and it will literally pay to stay on top of what is available. 

I.  EPA Side- the American Recovery and Reinvestment Act of 2009 specifically includes $7.22 billion for projects and programs administered by EPA. 

Below is a description of the major areas of funding as well as an analysis of whether this funding presents new opportunities. EPA has established a web site page with helpful links that discuss the opportunities in the Stimulus Bill relative to the money designated for EPA.

Brownfields:  There is over $100 million directed to U.S. EPA's brownfield redevelopment program.  I was intrigued regarding this new slug of money for it could present another great opportunity for clients outside of the Clean Ohio program.  However, after asking for more details from U.S. EPA, I learned that this money is basically already spent.  The U.S. EPA intends to use it for projects that requested funding back in 2008 but were not funded due to an over abundance of proposals.  While its good news more projects are getting funded, I believe U.S. EPA could have even received better project proposals if they would have allowed for new applications. 

Diesel Emission Retrofits Act (DERA):  The Stimulus directed over $300 million in new money to fund the DERA program. DERA is the federal grant program that pays for diesel engine retrofits, repowers and replacements.  Last years allocation was only $50 million for the entire country.  So the Stimulus does provide real, new money for this program.  U.S. EPA intends to spend the money quickly so watch U.S. EPA's website and Recovery.gov to jump in with your project.

Underground Storage Tank (USTs) Cleanups: $200 million was provided to U.S. EPA's Leaking Underground Storage Tanks (LUST) Program, EPA provides resources to states and territories for the oversight, enforcement and cleanup of petroleum releases from underground storage tanks (USTs). EPA estimates that every year 7,570 new releases occur which just adds to the sites that have not yet been completed.  There could be as many as 116,000 sites requiring clean up actions in 2009. However, it appears the funding will be used to help pay for clean ups of abandoned tanks rather than create a new grant program.  Here is additional detail from the from the Convenience Store News regarding the Stimulus package:

Other measures relevant to c-stores include a final approval of $200 million for the Leaking Underground Storage Tank (LUST) Trust Fund, which assists in the cleanup of abandoned gas stations, but will not pay for inspections or to assist state reimbursements programs.

Superfund Cleanups: $600 million was provided to U.S. EPA's superfund program.  However, these funds will be obligated mostly through existing contracts and Interagency Agreements.  In 2009 there could be as many as 20 Superfund sites ready for construction, but not funded due to budget shortfalls. The Recovery funds will begin to address those sites, plus accelerate construction at many of 600 sites where work has been limited in the past by funding constraints.

Clean Water State Revolving Fund and Drinking Water State Revolving Fund: $4 billion for assistance to help communities with water quality and wastewater infrastructure needs and $2 billion for drinking water infrastructure needs. A portion of the funding will be targeted toward green infrastructure, water and energy efficiency and environmentally innovative projects. (guidance on the green infrastructure component)

Ohio EPA has begun soliciting projects for its Drinking Water and Wastewater Revolving Loan Programs.  However, projects must already have been planned and reviewed by Ohio EPA for inclusion on project planning lists.  For instance, drinking water projects must be on the Drinking Water Project Priority List (PPL).

II.  Renewable Energy- the American Recovery and Reinvestment Act of 2009 bill is anticipated to provide around $43 billion for renewable energy in the form of tax breaks and other incentives

The extended entry includes a summary of the renewable energy incentives and investment as assembled by the American Council on Renewable Energy (ACORE). (the link provides you a hard copy of the ACORE document- which does a great job of assembling the relevant information for renewable energy incentives- or see the extended entry for a summary).

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On August 20, 2008, the Public Utility Commission of Ohio (PUCO) put forth proposed rules governing alternative and renewable energy sources.  The rules main purpose was to govern implementation of the State's new Advanced Energy Portfolio Standard (AEPS) established in Senate Bill 221.  The AEPS is broader version of a renewable portfolio standard (RPS) adopted by other states which mandates a certain percentage of power come from designated renewable energy sources.

The PUCO set a very aggressive public comment period in an attempt to finalize the rules quickly.    The comment period closed on September 26, 2008.  In the short month long comment period, the PUCO received hundreds of pages of divergent comments on the proposed rules. (See my prior post: Issues with proposed rules governing the AEPS)  Since closure of the comment period, the PUCO has failed to developed a second version of the rules. 

Today, a company filed a new letter on the docket which discusses the real world impacts of the delay in finalizing the rules governing the administration of the AEPS in Ohio.  Until the rules are finalized, no one knows what the renewable energy credit (REC) market will look like in Ohio.   A REC is the certificate issued to generators of renewable energy sources.  The certificate can be sold to the utilities to meet their compliance requirements with the AEPS.  REC are seen as a way to encourage renewable energy development.

The problem is that there are so many questions left regarding the construction of the rules, no one can set a reliable price for RECs. S.B. 221 contained a cap on REC prices of $45 per megawatt which certainly is the ceiling on REC prices in Ohio.  However, that leave a huge range in potential prices that is highly dependent on the construction of the rules.

The compliance period for the AEPS in Ohio begins in 2009.  Without an established market projects will get delayed.  This will make it far more difficult for Utilities to comply with the AEPS mandates.  In 2009, Utilities must develop or purchase .25 % of their total generation capacity from renewable energy sources.  While a quarter of a percent may seem tiny, in an energy market as big as Ohio's there will be a significant need for RECs.

In 2008 Ohio generated 13,000 megawatts of power.  A quarter percent means the REC compliance market in 2009 will be around 32,500 megawatts.  This is certainly enough to drive a significant amount of project develop in the State. 

Until the rules are established, the market for RECs will be uncertain.  Without this needed certainty many will delay moving forward with projects.  Of the states with an RPS, Ohio was one of the last states to establish an RPS.  This has meant Ohio has been late to the game in attracting investment and green jobs related to the renewable energy market.  The rules need to be finalized quickly so that Ohio doesn't lag further behind. 

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Governor Ted Strickland made his State of the State speech today.  While almost the entire speech was focused on education there were a few interesting nuggets relative to Ohio's progress in developing green jobs. 

"Over the last three years, Ohio has led the nation with 350 new or expanded facility projects in the renewable energy sector.

 Take solar energy, for example. The Toledo area has become an international center for solar research and production, with more than 6,000 people working in the solar industry. First Solar and Xunlight (Zun-light) both launched major expansions just this past year.

 All across the state we’ve seen advanced energy creating opportunities."

Later in the speech Strickland discussed Ohio's efforts to incorporate energy efficiency requirements into new government buildings:

Together we took the school building program that Governor Taft and the legislature created, and we expanded it to fund hundreds of new and renovated school buildings. And our new schools are being built to efficiency standards that will reduce our energy costs for the life of the building. In fact, Ohio has the largest energy efficient school building program in the nation.

The Governor should be commended for creation of a Renewable Energy Portfolio Standard (Ohio calls it an "Advanced Energy Portfolio Standard").  His initial proposal was greatly improved upon in the Legislature.  However, the rules governing implementation of the RPS seem to be currently stuck at PUCO after the Commission was flooded with comments on how to improve them.  Without improvement we stand to lose the momentum gained through passage of the energy legislation.

The Governor also included Advanced Energy Grant Funding in the Job Stimulus package passed recently.  However, the size of the grants ($250,000 for non-coal projects) seem to be too small to attract major new development to the State.

Is Ohio losing the momentum on attracting green jobs and economic development? 

President Obama has made clear his priority is renewable energy, climate change and green jobs.  Given Ohio's importance in the election this seems like a perfect fit to start getting Ohio out of its economic crisis and create the jobs of the future. Unfortunately, the Governor included no new proposals or ideas for how to build on Ohio's recent momentum in his State of the State address. 

Many states recognize the huge changes that are coming as a result of climate change and energy.  Unfortunately, Ohio lags these other states in developing and attracting the talent to truly lead in these areas.  As purely anecdotal evidence, when I attend national conferences that discuss these issues I will sometimes be the sole representative from Ohio. Meanwhile the New England States and West Coast dominate these conferences. 

Granted I don't attend every conference in these areas, but Ohio has certainly not lead on renewable energy.  It was the 26th state to pass an RPS.  Ohio has not lead at all on climate change. Its efforts have been focussed on resisting rather than improving climate change proposals. 

When the major policy changes on climate change and renewable energy are put forward, where do you think the jobs will go? 

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On Friday, November 7th, the Ohio Air Quality Development Authority (OAQDA) held a bidders conference to launch the Advanced Energy/Job Stimulus Program.  The Job Stimulus package set aside $150 million (over three years) to increase the development, production and use of advanced energy technologies in the state.

Those interested can begin filing applications for either grants or loans through the web portal on OAQDA's web page.  Unlike other competitive programs decisions will be made on a rolling basis, there is no deadline for filing applications.  However, $150 million is not a lot of funding for the types of projects involved, therefore it is likely available funds will dissipate quickly. 

The program has two separate pots of money:

• $66 million for clean coal technology projects administered through OAQDA’s Ohio Coal Development Office (OCDO).  Grants can be for up to $5 million for each project  The funding set aside for these projects is similar to other funding opportunities that have been provided by the OCDO.  Proposals will be reviewed by staff, outside reviewers and the Technical Advisory Committee and approved by OAQDA;
• $84 million for renewable energy and energy efficiency projects. Grants will be awarded in amounts from $50,000 to $250,000.  Loans will be $1 million to $2 million.  Funding will be in three $28 million annual appropriations administered by OAQDA. Projects will be reviewed by staff and outside reviewers, the Development Finance Advisory Council, approved by OAQDA.  Before funding can be awarded Legislative approval is necessary through the Controlling Board.
   

Some of the tips provided to bidders during the conference include:

1. "Tipping Point"-  Explain why a grant award or loan would be the tipping point in the project.  Would it help get the project through a difficult time?  Would funding allow some type of breakthrough? Would it lead to a possible major expansion in Ohio?
2. Jobs, Jobs, Jobs-  The main point of the funding is to stimulate job growth in the Ohio.  Therefore, you must be prepared to demonstrate that the project will generate jobs immediately.  New jobs will be favored over retained jobs.  Better if the are considered "foundational jobs"- meaning the project will lead to more jobs in the future.  Also, want to see better paying jobs.  
3. Leverage- The State wants to see that a grant award will other funding in the project.  Private funding is favored over other public financing.  The higher the leverage the better the application will be viewed. 

Applications can be made through the web portal.  To start the process applicants must only fill out a "letter of intent" which requires only minimal information.  OAQDA said at the bidders conference it is there goal to weed out unfundable projects early in the process. 

One other note, if you are going to pursue a coal grant, be advised that similiar with other funding through the OCDO, you will be required to sign a royalty/payment agreement.  OCDO is required by statute to seek a recovery for investing in research and development projects.  While I understand it is in the statute,  this requirement discourages businesses looking for funding that will accelerate commercial deployment of a proven technology. 

 (Photo: Great Valley Center Image Bank/everystockphoto.com)

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